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Heino v. U.S. Bank, N.A.

United States District Court, D. New Hampshire

December 6, 2016

Susan Heino
U.S. Bank, N.A. as Trustee For LSF9 Master Participation Trust Opinion No. 2016 DNH 219

          Darian M. Butcher, Esq.

          Nathan Reed Fennessy, Esq.

          Stephen T. Martin, Esq.


          Landya McCafferty United States District Judge

         This case, which has been removed from the Merrimack County Superior Court, consists of five claims asserted by Susan Heino in response to defendant's attempt to foreclose on a mortgage Heino gave to defendant's predecessor in interest, Washington Mutual Bank (“WaMu”). Before the court is defendant's motion for summary judgment. Plaintiff objects. The court heard oral argument on defendant's motion on July 26, 2016.

         Summary Judgment Standard

         A movant is entitled to summary judgment if it “shows that there is no genuine dispute as to any material fact and [that it] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In reviewing the record, the court construes all facts and reasonable inferences in the light most favorable to the nonmovant. Kelley v. Corr. Med. Servs., Inc., 707 F.3d 108, 115 (1st Cir. 2013).


         Unless otherwise indicated, the facts recited in this section are undisputed at this early juncture.

         A. Heino's Mortgage

         In early 2005, an employee of WaMu approached Heino, unsolicited, and told her that WaMu could provide her with a mortgage loan that had more favorable terms than the loan she had at the time. However:

He did not identify the loan as a negative amortization loan, and he did not explain the terms of the loan. Instead, he represented that it would provide her a lower interest rate, and that timely payments on the loan, would result in the principal decreasing, when in fact, he knew that the principal would not decrease. He also told her that her interest rate would remain the same for one year, when in fact, it would actually only remain the same for one month . . . .

         Doc. no. 1-1 ¶ 10. Based upon those representations, Heino submitted a loan application to WaMu.

         On May 18, 2005, in exchange for a loan of $311, 000, Heino gave WaMu an adjustable rate note. The following statements appear on the top of the first page of Heino's note:


         Doc. no. 5-4 at 2 of 9. Regarding changes in Heino's interest rate, the note provides: “The interest rate I will pay may further change on the 1st day of July, 2005, and on that day every month thereafter.” Id. at 3 of 9. Under the heading “Changes in My Unpaid Principal Due to Negative Amortization or Accelerated Amortization, ” the note provides:

Since my payment amount changes less frequently than the interest rate and since the monthly payment is subject to the payment limitations described in Section 4(F), my monthly payment could be less or greater than the amount of the interest portion of the monthly payment that would be sufficient to repay the unpaid Principal I owe at the monthly payment date in full on the maturity date in substantially equal payments. For each month that the monthly payment is less than the interest portion, the Note Holder will subtract the monthly payment from the amount of the interest portion and will ad[d] the difference to my unpaid Principal, and interest will accrue on the amount of this difference at the current interest rate.

Id. at 4 of 9.

         To secure her promise to repay the loan, Heino gave WaMu a mortgage on her property in Contoocook, New Hampshire. Paragraph 22 of the mortgage is titled “Acceleration; Remedies.” That paragraph includes the following relevant language:

Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this Security Instrument . . . . The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale. If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the STATUTORY POWER OF SALE and any other remedies permitted by Applicable Law.

         Doc. no. 5-5 at 16 of 23.

         At her closing, Heino was not represented by counsel, but WaMu was. The closing took less than an hour. WaMu's attorney did not allow Heino to read any of the closing documents, and did not explain any of the terms used in those documents to her. As Heino said in her verified complaint:

[I] did not realize at the time that the loan [I] signed with WAMU was an adjustable-rate, negative amortization note. In other words [I did not understand that], despite making [my] payments timely, the outstanding balance of the loan would increase because the payments were less than the interest charges.

         Doc. no. 1-1 ¶ 13.

         B. History of the Mortgage

         Heino's original mortgagee was WaMu. However, “WaMu collapsed on September 25, 2008.” Kim v. JPMorgan Chase Bank, N.A., 825 N.W.2d 329, 330 (Mich. 2012). Upon WaMu's collapse,

the federal Office of Thrift Management closed the bank and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for its holdings. That same day [i.e., September 25, 2008], the FDIC, acting as WaMu's receiver, transferred virtually all of WaMu's assets to [JPMorgan Chase Bank] under authority set forth in the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. Under 12 U.S.C. § 1821, the FDIC is empowered to transfer the assets of a failed bank “without any approval, assignment, or consent . . . .” However, in this case, [the FDIC] did not avail itself of that authority. Instead, the FDIC sold WaMu's assets to [JPMorgan Chase Bank] pursuant to a purchase and assumption (P & A) agreement.

Id. at 330-31 (footnotes omitted). In October 2008, JPMorgan Chase Bank, N.A. (“Chase”) informed Heino that it was her new loan servicer. Doc. no. 1-1 ¶ 15.

         In February 2013, acting in its capacity as the receiver of WaMu, the FDIC executed an assignment of Heino's mortgage to Chase. That assignment was filed in the Merrimack County Registry of Deeds, and it includes this language: “This Assignment is intended to further memorialize the transfer that occurred by operation of law on September 25, 2008 as authorized by Section 11(d)(2)(G)(i)(II) of the Federal Deposit Insurance Act, 12 U.S.C. S1821(d)(2)(G)(i)(II).” Doc. no. 5-6 at 2 of 2. In August 2015, Chase executed an assignment of Heino's mortgage to the defendant, U.S. Bank Trust, N.A., as Trustee for LSF9 Master Participation Trust (“U.S. Bank”).

         C. Heino's Payment History

         About a month after her closing, Heino discovered that the interest rate on her loan had increased. She also discovered that her principal balance would not necessarily decrease over time, because the loan she received from WaMu was a negative amortization loan.

         In 2009, at a point when she was current on her loan payments, Heino asked Chase about obtaining a lower interest rate. According to Heino:

Chase told [her] that if [she] wanted to modify the loan to obtain a lower interest rate, then [she] would need to fall behind on [her] payments. Per Chase's instructions, [she] stopped making [her] payments. Once [she] was far enough in default, [she] submitted a modification package to Chase.

Doc. no. 10-2 ¶ 11. In August 2009, Chase approved Heino for a loan modification trial payment plan (“TPP”) and told her that if she completed the trial successfully, a permanent modification would be put in place. Neither party has produced any written memorialization of the TPP agreement. Heino made the payments required by the TPP for September, October, November, and December 2009. For January 2010, Chase told Heino to make a payment that was even less than the reduced amount required by the TPP, and she made the payment Chase told her to make.

         In February 2010, Chase stopped accepting Heino's payments and refused to make her modification permanent. That same month, Chase sent Heino a letter captioned “Notice of Collection Activity.” It is undisputed that Chase's notice included all the information required by paragraph 22 of the mortgage. Specifically, the notice told Heino that she could cure her default by paying the total amount due stated in the notice ($7, 597.21), plus any additional monthly payments and late charges falling due within 30 days after the date of the notice. She did not do so. However, while Chase scheduled one or more foreclosure sales, it never conducted one.

         In December 2010, Chase sent Heino a letter she characterizes as “offering to allow her to sell [the mortgaged property] for less than the total balance on the loan.” Doc. no. 10-2 ¶ 17. But rather than making such an offer, that letter merely informed Heino that Chase was willing to talk with her about the possibility of avoiding foreclosure by conducting a short sale. See doc. no. 10-6 at 2 of 3.

         Over the next several years, Chase sent Heino any number of mortgage statements and other communications concerning her loan. See doc. no. 10-4. Finally, in August 2015, after Chase assigned Heino's mortgage to U.S. Bank, the new loan servicer, Caliber Home ...

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